New Jersey has a very powerful subrogation provision. That message was emphasized in Greene v. AIG Casualty Company, A-6287-11T4 (App.Div. October 16, 2013), a published decision rendered by the Appellate Division. It does not matter that the compensation case is ultimately found non-compensable: the employer still can enforce its lien rights as to prior payments made.

Kelly Greene worked for AIG and was injured on a wet floor in the lobby of the building where she worked. AIG did not own the building and leased only a portion of the premises. AIG initially denied the claim but thereafter paid substantial medical benefits without prejudice under N.J.S.A. 34:15-15. Greene also put AIG on notice of its subrogation rights under N.J.S.A. 34:15-40.

After investigating the lease agreement further, AIG eventually denied the claim as not arising out of the employment. In the interim, Greene recovered $225,000 in a civil action against the landlord. AIG sought reimbursement from Greene for two thirds of its workers’ compensation payments of $118,804.

Greene took the position that AIG was not entitled to reimbursement of its workers’ compensation lien if the case was found not compensable. Counsel for both petitioner and AIG reached agreement that the case was not compensable given that AIG did not own or control the lobby area where the accident occurred. The only issue was whether AIG was entitled to $79,203, representing two thirds of its payments. The Judge of Compensation held that since the case was not compensable, AIG was not entitled to its subrogation rights. The Judge concluded:

Section 40 is a part of the Workers’ Compensation statute. It is applicable in situations involving workers’ compensation claims and cannot be taken out of context to apply generally. If the claim is determined not to be compensable, the section is inapplicable. If it is compensable, the section applies.

AIG appealed from the order denying lien reimbursement. In a decision of first impression, the Appellate Division reversed the decision of the Judge of Compensation and held that AIG was entitled to reimbursement for two thirds of its payments of $118,804, notwithstanding that the claim was non-compensable. The court wrote:

Contrary to petitioner’s argument, nothing in either Section 15 or Section 40 conditions reimbursement of the claim from a third-party settlement on whether the benefits the employer paid were owed in the first place. Section 15 expressly provides that any payments the employer makes are without prejudice to a defense of non-compensability, and Section 40b allows the employer reimbursement from the third-party recovery if the sum recovered by the employee is ‘equivalent to or greater than the liability of the employer.’”

The Court went on to state that its holding is consistent with the remedial purpose of the Act by “making benefits readily and broadly available to injured workers through a non-complicated process.” Tlumac v. High Bridge Stone, 187 N.J. 567 (2006). The court said that this policy encourages employers to make prompt voluntary payments because it provides much needed medical and wage loss benefits to claimants while their claim is being investigated. In addition, the court said that its decision is consistent with the policy in New Jersey against double recoveries.

In an interesting twist, petitioner argued that she was penalized by AIG’s voluntary payments in this case because she would have been better off, in retrospect, by directing the medical treatment through her health insurance, thereby not having to reimburse the carrier. The court disagreed with this view, relying on the collateral source rule, N.J.S.A. 2A:15-97. “Under our collateral source rule, petitioner would have been obliged to disclose to the court any amounts she received from her health insurer and they would have been deducted from any tort judgment. Perreira v. Rediger, 169 N.J. 399 (2001). Accordingly, had petitioner’s health insurer paid her medical expenses instead of AIG, the benefit would have accrued to the third-party tortfeasor, not to petitioner.”

This case is the only published decision on this rather unusual issue. The undersigned handled the appeal of this case for AIG.

About the Author

About the Author:

John H. Geaney, an executive committee member and shareholder with Capehart Scatchard, began an email newsletter entitled Currents in Workers’ Compensation, ADA and FMLA in 2001 in order to keep clients and readers informed on leading developments in these three areas of law. Since that time he has written over 500 newsletter updates.

Mr. Geaney is the author of Geaney’s New Jersey Workers’ Compensation Manual for Practitioners, Adjusters & Employers. The manual is distributed by the New Jersey Institute for Continuing Legal Education (NJICLE). He also authored an ADA and FMLA manual as distributed by NJICLE. If you are interested in purchasing the manual, please contact NJICLE at 732-214-8500 or visit their website at www.njicle.com.

Mr. Geaney represents employers in the defense of workers’ compensation, ADA and FMLA matters. He is a Fellow of the College of Workers’ Compensation Lawyers of the American Bar Association and is certified by the Supreme Court of New Jersey as a workers’ compensation law attorney. He is one of two firm representatives to the National Workers’ Compensation Defense Network. He has served on the Executive Committee of Capehart Scatchard for over ten (10) years.

A graduate of Holy Cross College summa cum laude, Mr. Geaney obtained his law degree from Boston College Law School. He has been named a “Super Lawyer” by his peers and Law and Politics. He serves as Vice President of the Friends of MEND, the fundraising arm of a local charitable organization devoted to promoting affordable housing.

Capehart Scatchard is a full service law firm with offices in Mt. Laurel and Trenton, New Jersey. The firm represents employers and businesses in a wide variety of areas, including workers’ compensation, civil litigation, labor, environmental, business, estates and governmental affairs.

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